The Australian Monthly CPI Indicator tracks price changes for a selection of goods and services. Unlike the detailed quarterly CPI report, it doesn’t provide a full picture. In July, as the first month of the June quarter, the focus is mainly on goods, which means it offers less insight than other months. August gives a better overview by including important service prices, which are better at showing trends in domestic inflation. Data for August will be released on 24 September, right before the RBA meeting on 29–30 September.

July Inflation Expectations

We expect July’s CPI data to rise from June, with a predicted increase of 2.3%. This figure is still within the Reserve Bank of Australia’s target band of 2-3%. We see the upcoming July CPI data as a minor event that may create some short-term market fluctuations. While the 2.3% estimate is well within the RBA’s target, any big changes could lead to quick reactions in the currency market. This is reminiscent of a surprise 4.0% figure in May 2024, which briefly boosted the Aussie dollar before traders recalibrated due to the data’s unpredictability. Our main interest is in the August inflation data, coming out on 24 September. This release is crucial because it reflects key service prices, providing a clearer view of domestic price pressures. This will heavily influence the RBA’s interest rate decision during their meeting on 29 September.

Interest Rate Implications

Historically, the RBA has kept the cash rate at 4.35% since late 2023, awaiting clear evidence that inflation concerns are over. Currently, the market anticipates only a small chance for a rate cut this year, especially after unemployment rose to 4.2% last month. A weak August CPI report could push rate cut expectations into late 2025, while a strong figure would likely mean rates stay higher for a longer period. Given this situation, we find it worthwhile to buy short-term options to trade around the September 24 data release. A simple AUD/USD straddle allows us to benefit from large price movements in either direction, without committing to whether the inflation data will be strong or weak. The added uncertainty leading up to the RBA meeting makes this strategy appealing. Another option is to trade interest rate futures to prepare for the upcoming RBA meeting. If we expect a weak August inflation report, we could buy 30-day Interbank Cash Rate Futures, betting that the RBA will take a more cautious stance. This offers a straightforward way to respond to changing estimates for monetary policy in the coming month. Create your live VT Markets account and start trading now.

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